Director's Loan Account (2026): Overdrawn Balances, s455 at 35.75% and How to Clear Them

If you run your own limited company, every pound you take out that isn't salary, a dividend or an expense refund goes through your director's loan account. Left overdrawn at the year end, it can cost the company 35.75% in extra Corporation Tax for loans made from 6 April 2026, and cost you a benefit-in-kind charge too. This guide explains how the account works in 2026, the nine-month repayment window, the s455 charge and how to get it back, the £10,000 benefit rule, the bed-and-breakfasting traps, and the safest ways to clear an overdrawn balance, with worked examples in pounds.

Quick answer

A director's loan account records money you take from or put into your company outside salary, dividends and expenses. If you owe the company at the year end and don't repay within nine months and one day, the company pays s455 tax at 35.75% on loans made from 6 April 2026 (33.75% on earlier loans). The tax comes back once the loan is repaid, but only nine months after the end of the year in which you repay.

• Over £10,000 owed at any time in the tax year: a taxable benefit at the 3.75% official rate unless you pay interest

• Repay-and-reborrow of £5,000 or more within 30 days is ignored for s455

• Clearing the loan with a properly declared dividend or bonus avoids the bed-and-breakfasting rules

• Lending to your own company is tax-free; interest it pays you is taxable

What a director's loan account is

A limited company is a separate legal person from the people who own and run it, which is why its money isn't your money. Our what is a limited company guide explains that separation in more detail. Because of it, there are only a few clean ways to take money out of a company: salary through payroll, dividends from profits, and reimbursement of business expenses you've paid personally. Anything else, such as paying a personal bill from the business account, transferring cash to yourself without declaring a dividend, or drawing money "on account" during the year, is a loan from the company to you.

The director's loan account (DLA) is where those amounts are recorded. Money you take out is a debit; money you put in, expenses the company owes you, and salary or dividends credited but not yet paid are credits. If the debits exceed the credits, the account is overdrawn and you owe the company. If the credits exceed the debits, the account is in credit and the company owes you. The balance must appear on the company's balance sheet, and loans to directors must be disclosed in the notes to the annual accounts.

In practice, most overdrawn accounts build up by accident rather than by design. A director pays for a family holiday on the company card, transfers round sums to their personal account each month expecting to tidy it up with a dividend later, or takes dividends that were never formally declared. Each of those is a debit to the loan account until something else credits it. Reconciling the account every month in your bookkeeping software, and tagging every personal item as soon as it happens, is the simplest protection against an unpleasant surprise at the year end.

The rules on overdrawn accounts apply to close companies, which covers almost every owner-managed company: one controlled by five or fewer shareholders, or by its directors. They apply to loans to shareholders (participators) and their associates, such as a spouse or relatives, as well as to directors. The same principles apply if a family member draws money from the company.

The s455 charge on an overdrawn account

If your account is overdrawn at the end of the company's accounting period and the loan isn't repaid within nine months, the company must pay an extra Corporation Tax charge under section 455 of the Corporation Tax Act 2010. It's charged on the amount still outstanding at the payment date, which is nine months and one day after the end of the accounting period, the same day as the company's normal Corporation Tax (9 months and 1 day after the end of the accounting period). The company reports the loan on form CT600A, the supplementary page of its Corporation Tax return.

The rate isn't a fixed number. Since April 2016 it has been tied to the dividend upper rate for the tax year in which the loan was made. When the November 2025 Budget raised the dividend upper rate for 2026-27, the s455 rate rose with it.

Because the rate depends on when each advance was made, a company can have balances at two rates in the same account. If you make a partial repayment, it matters which loans it clears; record the dates of each withdrawal so your accountant can match repayments correctly. HMRC has told agents that its Corporation Tax online service won't be updated for the 35.75% rate until 6 April 2027, so a company filing earlier may need software or a later amendment to show the correct figure. The rate in HMRC's own manual already reflects the change.

s455 is a temporary tax rather than a permanent cost. When the loan is repaid, written off or released, the company can claim it back. The catch is timing: relief is due nine months and one day after the end of the accounting period in which the repayment happened, not when you repay. Interest charged on late-paid s455 tax isn't refundable. Claims must be made within four years; use the CT600A if it's within two years of the end of the period the loan was made in, otherwise form L2P.

Worked example: the cost of leaving a loan overdrawn

Rachel is the sole director and shareholder of a design company with a 31 March year end. Between June 2026 and March 2027 she draws £30,000 more than her salary and declared dividends. On 31 March 2027 her loan account is £30,000 overdrawn.

Rachel's s455 timeline

31 March 2027

Year end: £30,000 overdrawn (all loans made after 6 April 2026)

1 January 2028

Repayment deadline and Corporation Tax due date. Still unpaid: s455 of £10,725 due

15 June 2028

Rachel repays the £30,000 (in the year ending 31 March 2029)

1 January 2030

Earliest date the company gets the £10,725 back

If she repays the £30,000 by 1 January 2028, no s455 is due at all. If she doesn't, the company pays £30,000 × 35.75% = £10,725. Repaying five months later doesn't bring the money back quickly: relief only arrives nine months after the end of the year in which she repays, so £10,725 of company cash is tied up for two years. Had the loans been made before 6 April 2026, the charge would have been £10,125.

She also has a benefit-in-kind issue. Her balance was above £10,000 for most of 2026-27 and she paid no interest. If the average balance over the year was £20,000, the benefit is about £20,000 × 3.75% = £750. The company reports it on her P11D and pays Class 1A of £112.50; as a higher-rate taxpayer she pays £300 of Income Tax on it.

Rachel's numbers

£30,000

Overdrawn at year end

£10,725

s455 if not repaid

35.75%

£750

Benefit in kind

Interest-free, official rate

2 years

Cash tied up

If repaid after the deadline

The £10,000 benefit-in-kind rule

Separately from s455, a director or employee who borrows from the company on cheap or interest-free terms may have a taxable benefit. If the total of your beneficial loans is more than £10,000 at any point in the tax year, the benefit is the interest you would have paid at HMRC's official rate (3.75% for 2026-27, up from 2.25% in 2024-25) less any interest you actually paid. If the balance stays at or below £10,000 throughout the year, there's no benefit.

The company reports the benefit on your P11D by 6 July after the tax year and pays Class 1A National Insurance at 15%. You pay Income Tax on it through your tax code or Self Assessment. One way to avoid the benefit is to pay the company interest at the official rate. The company then has interest income on which it pays Corporation Tax, and you pay with already-taxed money, so this rarely saves much, but it does keep the paperwork clean.

The benefit-in-kind rule and s455 are independent. A £12,000 loan repaid within nine months of the year end avoids s455 but still creates a benefit for the months it was above £10,000. A £9,000 loan left outstanding avoids the benefit but still triggers s455.

Bed-and-breakfasting: repaying and reborrowing

The obvious way round s455 would be to repay the loan just before the deadline, from a personal overdraft or credit card, and then draw the money straight back out. Since 20 March 2013, anti-avoidance rules stop this working. HMRC's manual describes two tests.

The 30-day rule. If you repay £5,000 or more and, within 30 days before or after, take new loans of £5,000 or more in a later accounting period, the repayment is matched to the new loans rather than the old one. The old loan is treated as still outstanding, so s455 is still due on it.

The arrangements rule. If your balance is at least £15,000 just before a repayment, and at the time you repay there are arrangements or intentions to take new loans of £5,000 or more, the repayment is again matched to the new loans. This test has no time limit; HMRC says "arrangements" has a wide meaning, so a plan to reborrow in three months can be caught.

Will this repayment clear the loan for s455?

Repayment method	Bed-and-breakfasting rules apply?	Notes
Dividend declared and credited to the loan account	No	Taxed as income, so excluded
Bonus taxed through PAYE and credited to the account	No	Taxed as income, so excluded
Personal savings, no plan to reborrow	No	A genuine repayment
Personal overdraft, reborrowed within 30 days	Yes	Matched to the new loan
Dividend paid out in cash then paid back in	Yes	Loses its identity as income
Dividend from a different company	Yes	Must come from the same company

Dividend declared and credited to the loan account

Bed-and-breakfasting rules apply?

No

Notes

Taxed as income, so excluded

Bonus taxed through PAYE and credited to the account

Bed-and-breakfasting rules apply?

No

Notes

Taxed as income, so excluded

Personal savings, no plan to reborrow

Bed-and-breakfasting rules apply?

No

Notes

A genuine repayment

Personal overdraft, reborrowed within 30 days

Bed-and-breakfasting rules apply?

Yes

Notes

Matched to the new loan

Dividend paid out in cash then paid back in

Bed-and-breakfasting rules apply?

Yes

Notes

Loses its identity as income

Dividend from a different company

Bed-and-breakfasting rules apply?

Yes

Notes

Must come from the same company

For example, if Rachel pays back £25,000 from savings on 20 December 2027, before the 1 January 2028 deadline, and then draws £25,000 again on 10 January 2028, the two fall within 30 days and the new loan is in the year ending 31 March 2028. The 30-day rule matches her repayment to the January loan, so the original £25,000 is still treated as outstanding and s455 is due on it.

Clearing an overdrawn account the right way

There are four clean ways to deal with an overdrawn balance, and they all carry some tax. The aim is usually to choose the cheapest one in time to avoid s455 altogether.

Options for clearing a director's loan

1. 1

   Declare a dividend

   If the company has enough distributable profits, declare a dividend and credit it to your loan account. You pay dividend tax at 10.75% or 35.75%; the company pays nothing extra.

2. 2

   Pay a bonus through payroll

   A bonus is deductible for Corporation Tax but carries Income Tax and employee and employer NI. It's usually more expensive than a dividend for a shareholder-director.

3. 3

   Repay from personal funds

   Savings or money not borrowed back from the company. Keep evidence of where the money came from.

4. 4

   Write off the loan

   The company can formally release the loan. You're taxed on it as income, usually at dividend rates, with Class 1 NI through payroll, and the company can reclaim any s455.

For a director with a £12,570 salary, clearing a £30,000 overdrawn account with a dividend costs about £3,171 in dividend tax: £500 at 0% and £29,500 at 10.75%. That's a real cost, but unlike s455 it's permanent and final, and it avoids £10,725 of company cash being locked away for two years. The dividend tax guide shows how dividends sit on top of your salary. Before declaring any dividend, check the latest management accounts show enough retained profit after Corporation Tax; an unlawful dividend can itself become a debt to the company.

Lending money to your own company

The account can also run the other way. If you put your own money into the company, pay business costs personally, or leave declared dividends undrawn, the company owes you. There's no tax when you put money in or take it back out up to the amount you lent. If the company pays you interest, it's a deductible expense for the company and taxable savings income for you. The company must deduct basic-rate tax at 20% from the interest, pay it to HMRC and report it quarterly on form CT61, and you report the interest on your Self Assessment return.

Lending to your company is common when it's starting out and needs cash for equipment or a deposit. Record the loan clearly, with board minutes if the sums are significant, so it's obvious later that money drawn back is a repayment to you, not a new loan from the company.

Overdrawn accounts: the wider risks

Tax isn't the only reason to keep the account under control. If the company becomes insolvent, a liquidator or administrator will treat your overdrawn balance as a debt you owe and can pursue you personally for it, cutting through the limited liability you set the company up to get. Directors sometimes try to clear a large balance with a dividend just before insolvency, but a dividend paid without distributable profits is unlawful and can be reclaimed. If you plan to close a solvent company, the balance needs clearing first; our closing a limited company guide explains the options.

Company law adds a further check. Under the Companies Act 2006, loans to directors generally need shareholder approval, with an exception for small loans and business expenditure up to £10,000. In a one-person company that's a formality, but it matters where there are other shareholders, investors or a lender with covenants. Lenders and mortgage underwriters reading your accounts also notice a large overdrawn balance, and HMRC uses s455 disclosures as a risk indicator.

Common mistakes

Year-end director's loan checklist

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• Reconcile the loan account monthly, not just at year end
• Record the date of every withdrawal so 2026-27 loans can be identified at 35.75%
• Check whether the balance went over £10,000 at any time in the tax year
• Decide how to clear any overdrawn balance well before the 9-month deadline
• Declare dividends formally with minutes and vouchers before crediting the account
• Avoid repaying and reborrowing within 30 days
• Complete the CT600A and P11D where needed

Share Print

The most expensive mistake is not looking at the account until the accountant prepares the year-end figures, by which time several months of the nine-month window may have gone. Others include using last year's 33.75% rate for new loans, assuming a repayment from a credit card that's immediately topped back up from the company will work, and forgetting the benefit-in-kind charge on an interest-free balance.

Budget watch

Because the s455 rate follows the dividend upper rate, any change to dividend tax in the Budget on 28 October 2026 would also change s455 for new loans from the date it takes effect. The official rate of interest is reviewed quarterly as well. We'll update this page after the Budget.

Official links

• Director's loansRules, s455, reclaims and CT61
• CTM61505: s455 rates35.75% from 6 April 2026
• CTM61615 onwards: bed and breakfasting30-day and arrangements rules
• Official rate of interestBeneficial loans
• Taking money out of a limited companySalary, dividends and loans

What to do next

Check your loan account balance today, list the withdrawals made since 6 April 2026, and decide before the year end how you'll clear any overdrawn balance, usually with a properly declared dividend. Use the budget planner to set aside the dividend tax, and read our Corporation Tax guide for the deadlines s455 shares with your main return.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is a director's loan account?

It's the record of money moving between you and your company that isn't salary, dividends or expense repayments. If you take money out, the account becomes overdrawn and you owe the company. If you put money in, the company owes you. The balance must be shown in the company's annual accounts.

What is the s455 tax rate in 2026?

For loans made on or after 6 April 2026, the s455 charge is 35.75% of the amount still outstanding nine months after the company's year end. Loans made between 6 April 2022 and 5 April 2026 stay at 33.75%. The rate follows the dividend upper rate, which rose in April 2026. The tax is repayable once the loan is repaid, written off or released.

How long do I have to repay an overdrawn director's loan?

To avoid s455 tax, repay it within nine months and one day of the end of the company's accounting period, the same day Corporation Tax is due. For a 31 March 2027 year end, that's 1 January 2028. Repayments must be genuine: borrowing the money straight back can be caught by the bed-and-breakfasting rules.

Is a director's loan a benefit in kind?

If you owe the company more than £10,000 at any time in the tax year and pay less than the official rate of interest (3.75% for 2026-27), the interest you save is a taxable benefit. The company reports it on your P11D and pays Class 1A National Insurance at 15%, and you pay Income Tax on it.

Can I clear my director's loan with a dividend?

Yes, if the company has enough distributable profits. The dividend is declared properly and credited to your loan account instead of being paid out. You pay dividend tax on it as normal, but because the repayment is itself taxed as income, it isn't caught by the bed-and-breakfasting rules. Keep board minutes and a dividend voucher.

What happens if my company writes off my director's loan?

The company can reclaim any s455 tax it paid. For you, a written-off loan is taxable income, usually taxed like a dividend, and HMRC expects Class 1 National Insurance to be paid through payroll on it. You report it on your Self Assessment return. A write-off should be formally approved and documented.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Director's loans — GOV.UK · accessed 9 October 2026
2. 2.CTM61505 — loans to participators: general — HMRC Company Taxation Manual · accessed 9 October 2026
3. 3.CTM61630 — bed and breakfasting: 30-day rule — HMRC Company Taxation Manual · accessed 9 October 2026
4. 4.CTM61635 — bed and breakfasting: arrangements rule — HMRC Company Taxation Manual · accessed 9 October 2026
5. 5.CTM61642 — bed and breakfasting: exclusions — HMRC Company Taxation Manual · accessed 9 October 2026
6. 6.Beneficial loan arrangements: HMRC official rates — HMRC · accessed 9 October 2026
7. 7.Consequential adjustment caused by dividend tax rate changes — Crowe UK · accessed 9 October 2026
8. 8.Running a limited company: taking money out of a limited company — GOV.UK · accessed 9 October 2026